Tuesday 19 June 2012 10.55 EDT
First published on Tuesday 19 June 2012 10.55 EDT

Spain's economy continued to ride the bailout rollercoaster on Tuesday as borrowing costs remained at unsustainably high levels and the government paid its highest rate in a dozen years to raise money.

A €3bn (£2.4bn)bond issue proved, however, that Spain could still borrow on the markets – even if interest rates on 12 to 18-month bonds have now risen to more than 5%.

Prime minister Mariano Rajoy, meanwhile, reportedly failed to persuade eurozone colleagues that a bailout of up to €100bn for Spanish banks should not be counted as national debt – a move that would have eased growing pressure for a full bailout of Spain.

"Connecting banking risk and sovereign risk has become very damaging," Rajoy told fellow world leaders at the G20 meeting in Mexico, according to Spanish reporters who accompanied him.

Although others in Europe would also like to reduce the link between banking risk and country risk, the eurozone finance ministers who decide on bailouts were reportedly against the idea. "The rules do not permit it," one senior official told El País newspaper.

The €100bn, which is expected to be channelled through Spain's bank restructuring fund, will increase Spain's national debt by up to 15%.

Spain is expected on Thursday to state the global figure of how much it will take from the €100bn credit line offered to its banks by the European Union's bailout fund. That decision would be made after a first – and rapid – round of independent audits of Spain's banking system.

A decision by the Bank of Spain to postpone a second round of audits from late July until September did nothing to settle market nerves. Yields on Spain's benchmark 10-year bonds dropped slightly, but still stayed over the crucial 7% rate that many economists consider unsustainable.

Finance minister Luis de Guindos insisted that Spain did not deserve to be paying such a high penalty, claiming that reforms would soon reduce the budget deficit and set growth going again. "The way markets are penalising Spain today does not reflect the efforts we have made or the growth potential of the economy," he said. "Spain is a solvent country and a country which has a capacity to grow."

Budget minister Cristóbal Montoro continued to call for the European Central Bank (ECB) to resume buying Spanish bonds in order to keep borrowing costs down – and some analysts saw ECB action as inevitable as fears over contagion in Italy grew.

But others thought it was too late to see off a full bailout of Spain's entire economy. "It is inevitable," said Harvinder Sian, of RBS. "The market has made its statement. There has to be a change in the way the Europeans are attacking the crisis."

Many analysts now consider that the decisions which will shape the future of Spain are no longer in the hands of its own politicians. "The Spanish government is close to exhausting its domestic policy options, with the markets increasingly demanding a game-changing response from the EU/ECB to the latest phase of the crisis," said Raj Badiani of IHS Global Insight.

"The crisis is increasingly no longer about Spain. It's about the fear that the eurozone is going to fall apart because of the absence of a fiscal and banking union. The market has become increasingly binary: backstop or break-up," said Nicholas Spiro, of Spiro Sovereign Strategy.

"Spain is the focal point for market nervousness. A country whose public debt is still relatively low compared to the eurozone average is now perceived to be flirting with insolvency."

• Spain's network of toll roads was downgraded on Tuesday by Moody's as drivers kept their cars at home and a declining economy saw fewer trucks on the road.It also cited the financing problems of regional governments who pay so-called "shadow tolls" based on the number of vehicles that use the motorways.

Operators of toll roads, especially those built over the past decade to ease congestion into Madrid, have complained about falling profits but Rajoy is considering introducing tolls on more routes including one of Madrid's ring roads.

Toll operators have told the government that it could raise between €8bn and €12bn a year by charging to use all motorways.